The Wrong Fairy Tales: Ignore These Mortgage Myths!

The Wrong Fairy Tales: Ignore These Mortgage Myths! - mortgage sign image


Very few people are able to buy a house outright. Some people will try to make the argument that this is a problem unique to our financially-troubled times, but the truth is that we’ve rarely not lived in “financially-troubled” times where a lot of people were able to buy homes without assistance from some institution.

Banks and other lenders have been pulling the financial strings of the vast majority of homeownership for a long time, and it will probably continue to be that way for a long time yet. The fact is that, unless you’re pretty darn wealthy, you’re going to need financial assistance to get a home. Heck, even the wealthy need the assistance at times, when you consider modern house prices.

Getting a mortgage is, in all likelihood, how you’re going to get your own home. So it’s important that you’re not falling for any myths about mortgages! Here are some of the most common.

A pre-approved loan is a sure thing

Yes, you should definitely get a mortgage pre-approved before you start shopping for property. But this doesn’t mean that a pre-approved mortgage is the same thing as a mortgage! However, once you’ve made an offer on the place, the lender is going to double-check everything. After all, things may have changed between that pre-approval and the final approval. Remember that prefix: pre-approval. It’s not total approval just yet!

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A high income is all that matters

Let’s say you’ve got one person earning $100,000 a year and another that earns $50,000 a year. The first one is going to get the best mortgage rate, right? Well, not necessarily. There are a lot of factors to consider. Ms $100,000 may also be paying about $60,000 in debt every year, whereas Ms $50,000 is only paying maybe $3000 in debt. The latter has a healthier cash flow, so has the upper hand! Another thing to consider is the type of work you do. Ms $50,000 may be a scientist with a steady career ladder ahead. Ms $100,000 may be a self-employed freelancer who could potentially earn much less in the following year!

Your credit needs to be spotless

It’s true that a good credit score is highly desirable if you want a mortgage. But you’re not expected to have a perfect score. But if you have a middling score – and many people do! – then it’s not exactly a deal breaker. In general, a few blemishes won’t hurt you overall as long as you have a steady income and pay your bills.

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Image Credit Flickr and Cafe Credit

You need to have 20% saved for a down payment

20% is the amount that always gets thrown around when it comes to saving up money for a down payment on a home. And, yes, that is the best minimum to have if you want the best mortgage rates. But it’s not necessary – after all, that 20% is usually quite a lot of money. There are a lot of good institutions who will give you a mortgage with a down payment of about 5%, for example. Don’t assume you’re doomed if you haven’t saved that magical amount of 20% just yet!

Strategies For Tackling Debt – Which Is Best?

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As any financial expert or debt advisor will tell you, the way to approach tackling your financial woes is to take a systematic approach. However, there are a few different strategies you can employ on your quest to become debt free. Some will work well for you; others may not. But how can you tell which is best for you and your finances?

Today, we’re going to go through a broad range of debt-tackling strategies and explain everything you need to know. Let’s take a closer look at some of your options, and – we hope – point you in the right direction for the strategy best for your situation.

Debt Consolidation

Most debt experts will advise you that you should never consolidate your debts – or, at the very least, be incredibly careful about doing so. However, there are some benefits in going down this route as long as you do your research and choose the right path. For example, interest-free balance transfers can switch your debts so that you don’t pay any interest at all for a set period, meaning all the repayments go towards paying the debt off. However, given that you need a good credit score to enjoy interest-free balance transfers, it’s not always an option. In this case, you might try to look for bad credit loans and consolidate that way. Bear in mind that these can be expensive, so it’s important to work out whether consolidation is worth your while. It might be the case that tackling your debts individually is a more cost-efficient tactic. If you decide that this route is better, the following strategies might help.

The Avalanche

The avalanche method is where you pay off your debts one at a time, focusing on the debt with the highest interest – or highest balance – first. Once you have paid off your highest interest debt, you move onto the next highest, and so on. Using this method is thought to be useful as your higher interest debts will, ultimately, cost you more. However, if the debt is large, it can take a significant amount of time to pay it off, and it requires you to put a lot of money towards it if you want to see quick results.

The Snowball

The debt snowball method focuses on your smallest debts first. The idea here is to get rid of your debts in a systematic way, eliminating them one by one and feeling like you are making progress. Now, let’s take a look at some of the snowball and avalanche methods in more detail.

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APR Method

This method involves working out which creditor is charging you the highest annual percentage rate. You continue paying your minimum repayment to all other creditors, and put any spare money into the highest interest charger. Once you have cleared the first debt, you move onto the next – not forgetting to include your minimum repayment. As you pay off each debt, you can take the minimum payments from your old debts and add them to the next biggest debts, ‘snowballing’ your repayment amounts as you go along. By the time you start paying off your largest debts, you should have a significant sum of money set aside, and it should – in theory – take less time to clear.

Highest Balance Method

You can also consider the highest balance method to repay your debts. This strategy can work if you have a couple of big debts that seem impossible to erase. However, if you put every spare cent you have into tackling your most significant debt, it won’t take long to start seeing your results. Let’s say you have $5,000 on a credit card. If you could, for example, pay $200 a month, in a year’s time you will have whittled this down to $2,800, assuming you have managed to freeze all other interest charges. It’s a dramatic impact that has reduced your debt with that creditor by almost half.

Quick Win

When you keep getting bill after bill in the mail, debts can actually start impacting your life and wellbeing. And it’s always difficult to know where to start. There is a solution, however – go down the quick win route. Using this strategy puts your focus on eliminating your easiest debts first – the ones with the lowest number of repayments left. If there are two debts with similar end dates, tackle the one with the higher monthly payment. While this strategy might cost you more in the long-term than, say, the APR method, it will still give you a sense of momentum. And, most importantly, reduce the number of debts you have far quicker than the other strategies.

Low Balance

Similar to the quick win strategy, the small balance method involves tackling easy debts first – the ones with the least amount of money outstanding. Removing these irritating small debts gives you a sense of momentum, and you can then collate all the minimum repayment monies and use them to tackle the bigger problem areas. If you are struggling to pay off your debts, it’s a strategy worth considering as research shows it is often the most successful.

The family loan

Finally, consider borrowing money from a family member or trusted friend. There are a few reasons why this can work for both parties. First of all, let’s take a look at this strategy from your family member’s point of view. If your mom or dad has, say, money in a standard savings account, the chances are that they aren’t earning lots of interest on it. So, you could offer them a better deal over a set period of time, while still enjoying a lower interest rate than you are currently paying your creditors. This strategy is like a super-charged consolidation plan, as everyone on your side of the fence wins – and you get to pay off your creditors in one hit. It’s always worth doing this as the sooner you can repay your problem debts, the sooner you can start rebuilding your credit score and reducing the impact on your lifestyle and borrowing power.

Golden Rules Of Repairing A Poor Credit Score

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Via – pixabay

A bad credit score can have a terrible impact on your overall finances – and your lifestyle. But it’s  important to understand it is not the end of the world. With the right mindset and prudent financial planning, it is possible to repair your score and start getting your household’s money and borrowing ability back into shape. Let’s take a closer look at some of the golden rules of repairing bad credit.

Understand the importance of a good credit rating

The first golden rule is to know what you are dealing with. Good credit scores make your life easier, cheaper, and more manageable – it’s that simple. A poor credit score, however, can have a significant impact on your life. Your borrowing options will be limited. You might open yourself up to the harsh realities of bankruptcy. And you might find that you can’t get a job, rent a property, or even get a contract for a cell phone. It’s that serious – and it should spur you on to make amends.

Check your rating

The next golden rule is to understand your current credit position. You’ll need to check with the major credit reference bureaus such as Experian, Equifax, and the TransUnion. Once you sign up, you should be able to see a breakdown of all your borrowing history, as well as records of your bank accounts and any court judgements you might have against your name. At this point, it’s important to look for any records that you are not responsible for. Sadly, fraud and mistakes are all too common, and it’s not a rare occurrence for credit records to be incorrect.

Tackle your debts

The next step is to highlight all the debts that are causing you problems. Contact them and set up reasonable repayment schedules that you can afford, making sure that you have money left over for general household spending.

Start improving your credit rating

Now you are in a position where you can start repairing your score. And the way to do this is to prove that you are a responsible borrower. Unfortunately, many of the credit avenues you had before maybe closed off to you now, so working out how to get a loan with bad credit will usually result in applying to particular services and lenders. But the point is, as soon as you start paying back your debts promptly, your score will improve, bit by bit. Just borrow and spend small, affordable amounts and keep clearing your balances for a minimum of six months.

Don’t fall off the wagon again

Finally, once you have done all the hard work to repair your credit rating, don’t ruin things by making the same mistakes as before. See this as an opportunity to change the way you deal with your finances, and you should – with a little bit of luck and a lot of dedication – never find yourself in a similar position again. Keep checking your rating, and always update your current budget to ensure you are on the right track.

Having A Bad Credit Score Can Negatively Affect You – Here’s Why

Living the life of luxury and buying what you want, when you want is all well and good until it all finally catches up with you of course. Suddenly, the unnecessary spending seems like the worst thing you could have done and you’ll be tasked with having to explain to your kids why you can’t get them a new school uniform this year.

(Side note: teaching your kids about being responsible with money is hugely important and if you start now, you might be helping them to avoid the very same mistakes you’ve made that have led you here.)

You’ll struggle to get loans with a bad credit rating but don’t worry, it’s not the end of the world. If you’re really desperate and you are looking for some temporary relief from your financial struggle, are usually great at offering short term loans to those who need it.

Once you’ve sorted out a way to get food on the table this month, you must, must, MUST continue reading so that you can identify why having a low credit rating is so bad so that you’re determined to fix it.

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  1. Getting loans is going to be an uphill battle

When you have a bad credit score, obtaining a loan seems like an impossible task, and that’s because it usually is. The lower the score, the more you’re going to struggle to find a lender who will offer you a loan.

  1. You’ll be paying higher amounts of interest

If you’ve been applying desperately for loans and being faced with rejection time and time again, to then find that you’ve been accepted, you’re likely to take whatever you can and run with it. The problem with having a bad credit score is that you’ll encounter the really bad deals that come hand in hand with extortionately high interest rates. It’s well known that mortgage providers save their best loans (the ones with the lowest amount of interest) for buyers who have both a good credit score and a hefty deposit.

  1. Getting a roof over your head will be rather difficult

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Most landlords will want to run a credit check on you before you both sign above the dotted line and nothing will put a potential landlord off more than a wannabe tenant who has an awful credit score. Think about it – why would they want you living under their roof when you’ve proven in the past that you aren’t great with keeping up with payments or that you require the use of credit cards to help you get by from week to week?

If you do manage to find a landlord who’s happy to let you rent a place, you’ll probably find that you have a much smaller choice as landlords have previously admitted that they save their best properties for those with higher credit scores.

  1. The pre employment credit check isn’t going to be successful

So you’ve wowed your potential new employers during the interview process and they are all set and ready to offer you the job. A pre employment credit check is all part of the usual screening process during the hiring process as your employer will want to ensure that you don’t pose a risk to the business. They’ll be looking to see whether there’s any history of financial mismanagement and if it shows that you have a super low credit score, you might find that you never get that call with the job offer after all, even though you were certain you had it in the bag.

A study found that one in seven people have been told that they were denied a job due to a poor credit rating and if you’re applying for a job that involves dealing with money, government agencies or security clearance, you will definitely struggle to come out on top if your credit rating isn’t looking great to potential employers.

  1. Many a missed call

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You might also struggle to get a mobile phone contract. Whilst there are bigger and more important things to worry about (like finding a paying job and a place to live), not being able to have a phone is also a huge problem.Practically everyone these days has a phone and those who don’t are always met with suspicion. Mobile phone and network providers pay close attention when it comes to credit scores and if yours is bad, you’re far less likely to get yourself a month-to-month longer term (usually the cheaper ones in the long run) mobile phone plan.

Beware The Drawbacks Of A Bad Credit Score!

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A credit score is a value used by lenders and companies to see how financially trustworthy you are. It’s affected by factors such as when you pay your bills, how much money you borrow, and how much credit you use.

Most people don’t understand the importance of maintaining a good credit score. In fact, a report showed that 53% of households in the UK have never checked their credit report. It’s important to know how high your credit rating is, as a low one can affect your life in many ways. Here are some of the drawbacks of having a bad credit score.

Limited Borrowing Options

When it comes to getting a loan, a bad credit score can affect your options for the worse. Lenders often check your credit score before giving you money. Many will choose not to give you a loan if you have a bad credit score.

Having a bad credit score can often make your financial habits look worse than they are. Lenders will assume you can’t be trusted with money. It can make it much harder to get a loan when you need it. However, some companies look beyond these scores and offer poor credit personal loans for those who need it.

Your borrowing options can also be affected in other ways. Some lenders might require you to secure your loan against an asset such as your house. You may also have to deal with higher interest rates. When it comes to borrowing, a low credit score is also better.

Buying/Renting Accommodation

A poor credit score can also affect your living options. You might have trouble getting a mortgage, and some real estate agents may also be hesitant to deal with you. It’s not impossible to buy a home with a bad credit score, but you might still have to deal with higher down payments.

It can also affect your renting options. Landlords may not wish to rent to someone with a bad credit score. It gives the impression that they’ll be late with payments or be unable to make them. Once again, it won’t be impossible to find somewhere to rent. But your options will be limited, and you may have to settle for somewhere much less desirable.

It can even make your holidays more expensive. People might be hesitant to rent holiday homes to you. You might also have to deal with higher deposit fees.

Higher Insurance Costs

Insurance costs are one of the most crippling expenses for most people. Car insurance can take a significant chunk out of your income. Home insurance can also be expensive. These costs can be even higher when you have a poor credit score.

Car insurers take many factors into account when calculating your costs. Your age, the time you’ve been driving, and your car can all have an effect. Many insurers will also check your credit rating. If you have a bad credit history, you may be charged more, or they may refuse to insure you.

The same also applies to other kinds of insurance. You might be able to get a better deal by using an insurance broker. But suffice it to say, it’s always better to have a higher credit score.